Why An Investment Goal Is Important?

We all want a secured future where there is financial independence. Having the best cash ISA is good but it’s better when you have diversified investments for a better more secured future.

Investing money has now become very easy – a few clicks are often enough. So it can be tempting to invest in just any investment because you’ve heard from friends that it might be worth it, or because the media is reporting on an investment topic. However, beginners do better if they proceed systematically and carefully. That is why we have also developed a 5-point plan that gives investors orientation for their first investment:

  • Define your investment goal.
  • Define your investment period.
  • Define your willingness and ability to take risks.
  • Develop your individual investment strategy.
  • Only choose investments that you understand.

Having an investment goal instead of “simply buying a share” is the first, important step: Depending on the goal, the investment period, the willingness and ability to take risks and then the investment strategy also look different. If you want to invest in order to achieve high profits in the short term, you would have to take high risks, for example. If you want to invest in order to provide for old age in the long term, you need a different strategy. Anyone who invests in the future of their own children has other options – and can then access other forms of investment.

For example, there are goals such as “security” for investors who need less high returns but need secure investments. Or “growth” for investors who can and want to invest more aggressively. Once the goal has been defined, it is then a matter of creating the investor profile. Personal questions about risk, but also about your own circumstances and the investment period, are answered here. More on that in the next section.

The Investor Profile: This is all about risk

In order to develop an investment strategy, you need an investor profile. Investors answer very personal questions about their attitude to risk and their life situations. Because that’s the only way to get the investment strategy that suits you and your circumstances exactly. You have to answer two big questions:

How much risk can I take?

The so-called risk capacity depends on which risks investors can bear based on their current income and assets and their life situation. The investment goal and the investment horizon are also important for risk capacity, i.e. how long investors want to invest their money. Anyone who can and wants to make a long-term investment can take a higher risk than someone who needs the money back quickly. And the knowledge and experience in the investment business are also incorporated here. Investors with a lot of experience can take a different risk than beginners.

Read also: ESG Funds: What are They and What Makes Them the Best Investment Options?

How much risk do I want to take?

The willingness to take risks shows what the personal relationship between risk and return looks like. People who tend to be cautious but are happy with low returns have a different risk appetite than people who earn high returns and are comfortable with riskier assets.

Investment goals, period, and investment profile are defined. Then the next step is to create the investment strategy. All investment decisions are then based on this guideline – for example, whether more shares or bonds should be bought.

Posted by: Lauren Kinchela on

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